The Bull Bear Trader discusses market events and news with an interest in understanding risk and return in both bull and bear markets. Discussion topics include trading and hedging strategies, derivatives, risk management, hedge funds, quantitative finance, the energy and commodity markets, and private equity, as well as an occasional investment opinion.

Wikinvest Wire

The exchanges have long been considered to be printing presses for money. As volume has increased in recent years, the presses have been rolling along. Today the Wall Street Journal discusses the impact that the recent Treasury proposal (see previous post) may have on their ability to continue printing money. Paulson was apparently not happy when dealing with multiple regulatory bodies while at Goldman, so it makes sense that he would want to "streamline" things. Of course, as mentioned in a previous post, the best laid plans, especially with regard to regulation ........... well, you get the point.

Some exchanges, such as the NYSE that are involved in a number of products, could possibly see some benefit. Others, like the futures exchanges (such as the CME Group), may not, and will now have to deal with a larger regulator. The existing relationship the futures exchanges have with the CFTC will not be as strong. This may be good for the markets, but not necessarily good for a futures exchange that has enjoyed quick approval of new products. Of real concern for the futures exchanges is the impact on their clearing operations, another large profit center. Opening up the clearing operations may allow for more competition and lower prices. This is certainly not something these exchanges, or their investors, would welcome. On the other hand, the NYSE, which is involved in numerous products and is increasing its international expansion, should find working with one agency a potential benefit.

It will be interesting today to see if the CME group and NYMEX trade down on the news, and for how long. Given the amount of approval needed, any move may be short-lived. (Update Noon Central: Looks like both CME and NMX are down about 1.5-2%. Time will tell if the moves are short-lived. Paulson is already saying it will take a few years.)